For weeks, as states have attacked prediction market firms such as Kalshi and Robinhood, the Commodity Futures Trading Commission (CFTC) has remained tight-lipped. Kalshi has frequently cited the CFTC as something of a crutch: The federal government regulates prediction markets, Kalshi has said, and as a result, operators like Kalshi do no need to obey state-level laws.
Yet the CFTC has maintained its silence, which made the expected April 30 roundtable on the future of prediction markets a much-anticipated event.
Now, though, we have to continue the wait, as the CFTC has canceled that roundtable, with no reason given for the scrap and no update on when it might be rescheduled. Since the CFTC noted its intention to hold the roundtable, many took the opportunity to provide feedback and insight into the world of prediction markets — and many did so with the hope that the federal government would shut it down.
CFTC chair open to ‘forward-looking approach’ of prediction markets
While the date was not officially announced by the CFTC, many stakeholders planned on attending, contributing to or following the results of the meeting, which many projected would set the stage for how the federal government would perceive and regulate online prediction markets offered by the likes of Kalshi.
In early February, the CFTC announced it would hold a public roundtable with the goal of developing “a robust administrative record” informed by studies, data, expert reports and public input that would ultimately “inform the Commission’s approach to regulation and oversight of prediction markets, including sports-related event contracts.”
At the time, Caroline Pham, acting chairman of the CFTC, said that “the undue delay and anti-innovation policies of the past several years have severely restricted the CFTC’s ability to pivot to common-sense regulation of prediction markets.” Pham added that current CFTC interpretations surrounding event contracts “are a sinkhole of legal uncertainty.”
“Prediction markets are an important new frontier in harnessing the power of markets to assess sentiment to determine probabilities that can bring truth to the Information Age,” Pham said. “The CFTC must break with its past hostility to innovation and take a forward-looking approach to the possibilities of the future.”
Finally, Pham added: “This roundtable is a necessary first step in order to establish a holistic regulatory framework that will both foster thriving prediction markets and protect retail customers from binary options fraud such as deceptive and abusive marketing and sales practices”
AGA: Prediction markets pose ‘unfair economic threat’
Within its announcement, the CFTC recognized that “several key obstacles” have arisen regarding the balanced regulation of prediction markets. One, the CFTC pointed out, includes legal arguments that event contracts based on games or sports contests constitute “gaming” and are therefore prohibited under the Commodity Exchange Act (CEA), which Kalshi has often cited as a basis for continuing its operations.
The CFTC has accepted public comment since that initial announcement, and they have come in droves.
Among the earliest was from the American Gaming Association, which noted in a letter to the CFTC that while it had not previously taken a position on prediction markets, the AGA has “very strong concerns” regarding “what are essentially sports betting futures … available to retail customers in all 50 states.”
“We believe these sports events contracts are problematic for a variety of public policy reasons,” the AGA wrote. Since 2018, the association continued, 40 jurisdictions across the US have legalized sports betting within their respective purviews, licensing operators who are “subject to stringent regulations designed to protect customers, uphold game integrity, and promote responsibility, while also deriving economic and tax benefits for each respective jurisdiction.”
On top of posing “an unfair economic threat” to those licensed sportsbooks that spent time complying with regulatory statutes, “a ‘national’ sports betting product severely undermines state regulatory authority while also jeopardizing state tax revenue.”
If none of that was enough, the AGA highlighted that the regulated industry’s emphasis is that sports betting is about entertainment rather than for financial gain. “Casting sports contracts as an investable financial product significantly,” the AGA wrote, “undermines that message and threatens to create marketplace confusion around this important priority.”
GeoComply open to harmonizing federal-, state-regulated industries
Anna Sainsbury — founder and CEO of GeoComply, which supplies geolocation technology for state-licensed sportsbooks — called event-based contracts “an exciting area of innovation with the potential to offer consumers new and engaging ways to participate in the financial markets.
Sainsbury, though, quickly added that it remains important to respect the established regulatory frameworks put in place by state governments. Those statutes, Sainsbury said, were the byproduct of regulators weighing the benefits and concerns of legal sports betting, particularly as they apply to social impact and market integrity.
Understanding that, Sainsbury asserted, “any federal approach to sports event contracts would ideally acknowledge that state-level prerogative.”
“To ensure clarity for consumers and avoid potential jurisdictional ambiguity for federal and state regulators, it would be helpful for the CFTC and its partner organizations to establish a clear distinction between federally regulated financial products and state-regulated betting products.”
As such, Sainsbury said, “it is in everyone’s interest” that any event-based contract that does not fall under the definition of “gaming” as set forth in the CEA “be clearly differentiated from legal gaming activities within states.” Sainsbury suggested that the CFTC align age requirements (21 and over) and taxation with those established by state jurisdictions. All in all, Sainsbury’s letter indicated, GeoComply seemingly supported Kalshi’s practices, so long as there is some agreement between the federal and state regulatory frameworks.
“We are optimistic that a sensible path forward can be found that allows these innovative areas — sports betting and prediction markets — to coexist and operate in a complementary way,” Sainsbury wrote. “This can be achieved by ensuring that federal regulation of sports event contracts works in harmony with existing state regulatory structures, respecting state choices and addressing key compliance issues like age verification and taxation.”
New Jersey, Nevada speak out against prediction markets
It has become widely publicized that states have aimed to shut down Kalshi and other prediction market platforms altogether. In response, Kalshi has filed lawsuits against several states, including Nevada, New Jersey and Maryland.
It should come as no surprise, then, that two noteworthy bodies from those states submitted letters to the CFTC ahead of the roundtable.
The Casino Association of New Jersey, for example, shared that it was “deeply concerned” about the availability of sports events contracts, especially considering the economic impact they could have on the Garden State as well as harm brough unto consumers as a result of Kalshi and the like not having to adhere to New Jersey state gaming laws.
Highlighting the arduous efforts put forth just to have legal sports betting in New Jersey, Mark Giannantonio — president of the Casino Association of New Jersey — wrote that lawmakers, regulators and stakeholders put in all those hours to create a safe and responsible world of legal betting while also establishing a stream of tax revenue for New Jersey.
“In contrast,” Giannantonio wrote, “the sports events contracts that are being offered by CFTC-regulated companies provide no revenue to our state coffers, allow anyone 18 years old to bet on sports, and don’t restrict betting on collegiate wagers, a direct violation of our state laws that New Jersey citizens voted on. Those that have chosen to self-exclude or struggle with problem gambling have unfettered access to these platforms that offer no responsible gaming resources, putting our residents and Americans across the country at greater risk.”
The Nevada Resort Association expressed similar concerns in a separate letter, adding that “[b]y offering a nationwide betting product without any regulatory guardrails or consumer protections, the citizens of Nevada will be put at risk and our state’s largest economic driver will be damaged.”
What happens next? Now we wait
At last count, six states issued cease-and-desist orders to the likes of Kalshi, Crypto.com and Robinhood (not to mention several others who opened investigations into this industry), concluding that these prediction market platforms equate to illegal sports betting within their respective jurisdictions.
As mentioned, Kalshi filed suit against three of those states with the hopes that federal courts would establish a precedent and allow for event-based contract firms to continue operations based on the CEA and regulatory body that is the CFTC.
All the while, Kalshi has emphasized that if the CFTC told these operators to stop, they would do so. However, the CFTC has remained mostly silent on the matter, which is what made the now-canceled roundtable all the more intriguing.
For now, we will wait to see if the CFTC reschedules while Kalshi continues its legal fights.
